Knowledge First Financial Inc. and Heritage Education Funds Inc.

Multilateral Instrument 11-102 Passport System – National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – National Instrument 33-109 Registration Information (NI 33-109) – National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) – Relief from certain filing requirements of NI 33-109 in connection with a bulk transfer of registered individuals and business locations pursuant to an amalgamation in accordance with section 3.4 of the Companion Policy to NI 33-109 – Relief from providing clients written notice of the amalgamation and the right to close their account under section 14.11 of NI 31-103 – Investors exiting the scholarship plan would not be in their best interest given the plans features and would give rise to investor detriment.

Applicable Legislative Provisions

Multilateral Instrument 11-102 Passport System.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
National Instrument 33-109 Registration Information.
Companion Policy to National Instrument 33-109 Registration Information.

August 28, 2018

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the “Jurisdiction”)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
KNOWLEDGE FIRST FINANCIAL INC. AND
HERITAGE EDUCATION FUNDS INC.
(collectively, the “Filers”)

DECISION

BACKGROUND

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) for relief from:

• sections 2.3, 2.5, 3.2 and 4.2 of National Instrument 33-109 Registration Information (“NI 33-109”), pursuant to section 7.1 of NI 33-109, to allow the bulk transfer of all of the registered individuals and all of the business locations of each of Knowledge First Financial Inc. (“Knowledge First”) and Heritage Education Funds Inc. (“Heritage”) to a new amalgamated entity Knowledge First Financial Inc. (the “Bulk Transfer”), on or about August 28, 2018, in accordance with section 3.4 of the Companion Policy to NI 33-109; and
• the requirement under section 14.11 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (”NI 31-103”), pursuant to section 15.1 of NI 31-103, to provide a written explanation of the proposed amalgamation of Knowledge First and Heritage under the Canada Business Corporations Act (the “Amalgamation”) to clients and to inform clients of their right to close their accounts (the “Section 14.11 Notice”)

(collectively, the “Exemptions Sought”).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions,

(a)           the Ontario Securities Commission is the principal regulator for this application, and

(b)           the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (“MI 11-102”) is intended to be relied upon by the Filers in each of the provinces and territories of Canada outside of Ontario (the “Passport Jurisdictions”, and together with the Jurisdiction, the “Jurisdictions”).

INTERPRETATION

Terms defined in National Instrument 14-101 – Definitions and MI 11-102 have the same meaning in this decision, unless otherwise defined.

REPRESENTATIONS

This decision is based on the following facts represented by the Filers:

Background

1.             Knowledge First is a corporation incorporated under the Canada Business Corporations Act. The head office of Knowledge First is in Ontario. Knowledge First is a subsidiary of the Knowledge First Foundation.

2.             Knowledge First is registered as a scholarship plan dealer under applicable securities legislation in each province and territory of Canada. Knowledge First is also registered as an investment fund manager under applicable securities legislation in Ontario, Quebec and in Newfoundland and Labrador.

3.             As of the date hereof, Knowledge First has approximately 380 registered representatives in one or more of the Jurisdictions and 49 business locations in one or more of the Jurisdictions.

4.             Knowledge First is not in default of the securities legislation in any of the Jurisdictions.

5.             Heritage is a corporation incorporated under the Canada Business Corporations Act. Heritage is a wholly-owned subsidiary of Knowledge First. The head office of Heritage is in Ontario.

6.             Heritage is registered as a scholarship plan dealer and investment fund manager under applicable securities legislation in each province and territory of Canada.

7.             As of the date hereof, Heritage has approximately 1,386 registered representatives in one or more of the Jurisdictions and 75 business locations in one or more of the Jurisdictions.

8.             Heritage is not in default of the securities legislation in any of the Jurisdictions.

9.             Knowledge First acquired Heritage and Heritage Educational Foundation on January 2, 2018 (the “Heritage Acquisition”) and intends to amalgamate Knowledge First’s and Heritage’s business operations, including the role of the investment fund manager, by way of a corporate amalgamation under the Canada Business Corporations Act on or about August 28, 2018, into an amalgamated entity named Knowledge First Financial Inc. (“KFFI”).

Exemption Under NI 33-109

10.          Effective on or about August 28, 2018, all of the current registrable activities of Heritage and Knowledge First will be transferred to KFFI. KFFI will assume responsibility for all of the existing registrations and approvals for all of the registered individuals and all of the business locations of Heritage and Knowledge First.

11.          KFFI will continue to be registered in the same categories of registration as Heritage and Knowledge First, and will continue to be registered as a scholarship plan dealer under applicable securities legislation in each province and territory of Canada as well as will continue to be registered as an investment fund manager under applicable securities legislation in Ontario, Quebec, and Newfoundland and Labrador.

12.          KFFI will carry on the same business operations, including the role of the investment fund manager, of Heritage and Knowledge First in substantially the same manner with essentially the same personnel.

13.          The head office of KFFI will be Knowledge First’s current head office location, which is located at Suite 1000, 50 Burnhamthorpe Road West, Mississauga, Ontario, L5B 4A5.

14.          The registered representatives transferred to KFFI will carry on the same registerable activities at KFFI as they conducted at Knowledge First or Heritage, as applicable.

15.          Heritage and Knowledge First do not anticipate that there will be any disruption in the ability of Heritage and/or Knowledge First to trade on behalf of their respective clients, and KFFI should be able to trade immediately after the amalgamation.

16.          Given the significant number of registered individuals and locations of Heritage and Knowledge First, it would be extremely difficult to transfer each individual and location to KFFI in accordance with the requirements of NI 33-109 if the Exemption Sought is not granted.

17.          The bulk transfer will ensure that the transfer of the affected registered individuals and business locations occur on or about August 28, 2018, in order to ensure that there is no interruption in registration and service to clients.

18.          The Exemption Sought in respect of the Bulk Transfer complies with the requirements of and the reasons for, a bulk transfer as set out in section 3.4 of the Companion Policy to NI 33-109 and Appendix C thereto.

Exemption Under NI 31-103

19.          A press release will be issued immediately after the Amalgamation to confirm such change. In the Spring 2019, a notice will be included in the statement of account mailing to clients of Knowledge First and Heritage, confirming that the Amalgamation occurred and how the operations of Heritage and Knowledge First will be integrated over the following months.

20.          The above press release and notice will be in addition to the public disclosure, prospectus amendments and communication to the plan holders of the Heritage Plans and Impression Plan (the “Heritage Plan Holders”), the two scholarship plans currently distributed by Heritage, already made in connection with the Heritage Acquisition.

21.          The Amalgamation will not affect the ability of the Heritage Plan Holders to terminate their plans in accordance with the terms of those plans.

22.          In particular, those clients who entered into plan agreements within the 60-day period prior to the effective date of the Amalgamation (the “60-Day Heritage Subscribers”) will be able to withdraw from those plans and receive back all monies paid following the effective date of the Amalgamation in accordance with those plans.

23.          Knowledge First will provide the Section 14.11 Notice to these 60-Day Heritage Subscribers who will receive the notice within the period in which they can withdraw from the plans and receive back all monies paid. This will not include 60-Day Heritage Subscribers who are in the final 10 to 14 days of their 60-day withdrawal period (the “Excluded 60-Day Heritage Subscribers”) because Knowledge First will require 10 to 14 days from the effective date of Amalgamation to pull data from its information systems to identify those 60-day Heritage Subscribers, to finalize communication to and make arrangements for email and mail deployment, and for the 60-Day Heritage Subscribers to receive the Section 14.11 Notice. Those Excluded 60-Day Heritage Subscribers who fall within the 10 to 14 days required for Knowledge First to carry out this activity will not receive the notice in sufficient time to withdraw and therefore, Knowledge First will not send a Section 14.11 Notice to them.

24.          Receipt of the notice required by section 14.11 of NI 31-103 by Heritage Plan Holders could result in Heritage Plan Holders seeking to terminate their plans.

25.          The premature termination of those plans would not be in the financial interests of the Heritage Plan Holders, both in the short term or the long term, due to plan features such as a) loss of all fees and costs paid, b) loss of government grants, c) loss of accumulated earnings on contributions and government grants, d) prejudice to financial capacity to fund future post-secondary education needs, and e) disruption of the intended long-term savings and investment behaviour promoted by those plans.

26.          The notice would not be in the financial best interest of Heritage Plan Holders due to the potential detriment if Heritage Plan Holders seek to exit the plans prior to maturity.

27.          In view of previous disclosure with respect to the Heritage Acquisition and the potential for detriment if Heritage Plan Holders seek to exit their plans prior to maturity, to require Knowledge First and Heritage to issue a notice to Heritage Plan Holders informing them of a right to close their accounts would not be in the best interests of clients.

General

28.          The Exemptions Sought will not be prejudicial to the public interest and will have no negative consequences on the ability of KFFI to comply with all applicable regulatory requirements or the ability to satisfy any obligations in respect of the clients of Heritage and Knowledge First.

DECISION

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemptions Sought are granted provided that the Filers:

(i)            make acceptable arrangements with CDS Inc. for the payment of the costs associated with the Bulk Transfer;

(ii)           make such payment in advance of the Bulk Transfer; and

(iii)           provide the Section 14.11 Notice to the 60-Day Heritage Subscribers, excluding the Excluded 60-Day Heritage Subscribers.

“Elizabeth King”
Deputy Director, Compliance & Registrant Regulation Branch
Ontario Securities Commission